On July 14, 2014, the Federal Communications Commission (“FCC”) released its latest Connect America Fund Order, which sets forth the parameters of its planned “rural broadband experiments” program. As detailed below, the Order sets aside $100 million for providers—including competitive providers such as competitive local exchange carriers, cable operators, fixed wireless ISPs or alternative providers such as electric utilities and governmental entities—to deploy broadband networks in high-cost, unserved price cap areas. Formal applications are due within 90 days of date of the release of the Order, which would be no earlier than Oct. 14, 2014 depending on the timing of OMB approval of the application form. The Commission is expected to select winning applicants by the end of 2014. The Order sets forth detailed information about the eligible areas, applicant eligibility, the selection process and the conditions associated with support. The Commission also adopted a brief Further Notice of Proposed Rulemaking (“Further Notice”) to receive comment on how to create inducements for state action to assist in the expansion of broadband.

In January 2014, the Commission adopted an experiment to test how tailored economic incentives can advance the deployment of broadband in rural, high-cost areas, and invited interested entities to submit non-binding expressions of interest. By the end of May, the Commission received over 1,000 expressions of interest from a wide range of entities, collectively requesting more than $11 billion in federal funding.

The Order establishes a “limited scale” budget of $100 million—or less than 1% of the amount requested in the expressions of interest—because the experiments are intended to provide information regarding which and what types of parties are willing to build networks that will deliver services meeting FCC broadband performance standards for funding equal to or less than the support amounts calculated by the Connect America Fund Phase II cost model.

The parameters of the rural broadband experiments program are as follows:

Budget: The FCC sets aside $100 million, with funds to be drawn from an existing Connect America Fund reserve account.

Support Term: The Commission will fund proposals seeking recurring monthly support over a 10-year period, rather than projects seeking one-time support. Support generally will be disbursed as 120 equal monthly payments over the support term.

Eligible Applicants: Virtually any type of entity can apply, including CLECs, electric utilities, fixed and mobile wireless providers, WISPs, governmental entities and partnerships among interested parties. Applicants need not be designated eligible telecommunications carriers (“ETCs”) at the time of application, but they must obtain ETC designation from the state commission within 90 days after the announcement of winning bidders. If a state commission fails to act on an ETC application within 90 days, the applicant may ask the FCC to designate it an ETC.

Experiment Classes: The Order establishes three categories of experiments, with funding allocated as follows:

Category 1 - $75 Million for projects meeting “very high” broadband performance standards: deployment of a network capable of delivering 100 Mbps downstream / 25 Mbps upstream while offering at least one service plan that provides 25 Mbps downstream / 5 Mbps upstream to all locations within the selected census block(s). There is a limit of $20 million per project for projects in this category. In addition, there is an overall funding limit of $20 million per entity, including its affiliates, which applies across all categories.

Category 2 - $15 Million for projects meeting “minimum” broadband performance standards: projects where the provider offers at lease service plan that provides 10 Mbps downstream / 1 Mbps upstream to all locations in the selected census block(s). There is a limit of $7.5 million per project for projects in this category.

Category 3 - $10 million for projects serving “extremely high-cost” areas: projects in such areas (as defined by the FCC) that propose to offer 10 Mbps downstream / 1 Mbps upstream with 100 GB of usage and a price that meets the FCC’s reasonable comparability benchmarks. There is a limit of $5 million per project for projects in this category.

Selection Criteria: The Commission will select winning bidders based on objective measures of cost-effectiveness. Specifically, for Category 1 and 2 applications, the Commission will compare requested amounts to model-based support amounts and for Category 3 (extremely high-cost area) projects, the Commission will select winning applications based on the lowest cost per location. For each category, the Commission will compute a ratio of support to number of locations, rank the proposals based on the ratios, and select as many of the most cost-effective proposals as possible within each category until the budget is exhausted. No census block will receive support from more than one proposal and proposals seeking support for Tribal-only census blocks will receive a 25% bidding credit.

Bidding Process: Entities must submit (and not disclose) confidential bids, which will become public if the bid is accepted. The Wireline Competition Bureau will conduct a challenge process similar to the process used for determining eligible areas for model-based support as described in our recent Broadband Deployment Law Advisor update.

Other Requirements: Successful applicants will be required to demonstrate that they are technically and financially qualified by providing, among other things, three years of audited financial statements and a network diagram certified by a professional engineer. Before any funds will be disbursed winning bidders will have to provide an irrevocable stand-by letter of credit and an opinion letter from legal counsel warranting that the letter of credit and/or its proceeds will not be an asset of the winning bidder if it later declares bankruptcy.

Build-Out Schedule: Support recipients must complete network build-out to 85% of the locations within the support area by the end of third year of the support term, and to all locations by the fifth year. However, applicants have the option of receiving an accelerated disbursement of support (30% paid up-front and 70% paid over 120 months) if they commit to deploy service to 25% of the locations in the support area within the first 15 months.

Accountability Requirements: Support recipients must abide by a number of accountability requirements, including the submission of annual reports (including build-out information), annual certifications of compliance with FCC rules, record retention, possible compliance reviews (i.e., audits), and cooperation with the Commission’s data gathering efforts.

Finally, in the Further Notice, the Commission seeks information about how to leverage non-federal funding for rural broadband experiments. Specifically, the Commission seeks comment on how to create inducements for state action to assist in the deployment of broadband, such as bidding credits for entities leveraging state broadband funding. Comments are due in response to the Further Notice 30 days after its publication in the Federal Register, which has not yet occurred.

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The rural broadband experiments are on an accelerated timetable, with applications possibly due as soon as Oct. 14, 2014, so interested potential applicants should move quickly. Davis Wright Tremaine LLP attorneys have filed multiple expressions of interest in this proceeding, and are very familiar with the program.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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